The monetary-fiscal policy nexus in the wake of the pandemic by Konstantinos Tsatsaronis, Michael Chui, Tirupam Goel, Aaron Mehrotra published by BIS (3/2022).
The papers in this volume were prepared for a meeting of senior officials from central banks held at the Bank for International Settlements on 24-25 February 2021.
The Covid-19 pandemic cast the interaction between fiscal and monetary policy in a new light. The pandemic-induced recession made greater demands on both fiscal and monetary policy, triggered the need for closer domestic policy co-ordination, and led to a greater use of central bank balance sheets. This note discusses these issues, drawing on evidence from a survey of emerging market economy (EME) central banks. It first reviews the interaction between monetary and fiscal policy during the first phase of the Covid-19. It then explores the main factors that enabled EMEs to respond in a strongly countercyclical way to the pandemic shock. Finally, it discusses mediumterm policy challenges given that high private and public sector debt levels will need to gradually decline and buffers will have to be built up as the economy returns to normality.
